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web.groovymark@gmail.com
- November 28, 2024
Question 41
Which financial statement provides a snapshot of a company’s financial position at a specific point in time?
a) Income statement
b) Statement of cash flows
c) Balance sheet
d) Statement of retained earnings
Correct Answer: c) Balance sheet
Explanation: The balance sheet shows a company's financial position, including assets, liabilities, and equity, at a specific point in time.
Question 42
The formula for return on equity (ROE) is which of the following?
a) Net income / Total assets
b) Net income / Shareholder’s equity
c) Gross profit / Net sales
d) Total assets / Total liabilities
Correct Answer: b) Net income / Shareholder's equity
Explanation: ROE measures a company's profitability by comparing net income to shareholder's equity.
Question 43
Which of the following is a spontaneous account that changes with sales growth?
a) Fixed assets
b) Accounts payable
c) Equity
d) Long-term debt
Correct Answer: b) Accounts payable
Explanation: Accounts payable is a spontaneous account because it increases naturally with sales as more goods are purchased on credit.
Question 44
A firm’s sustainable growth rate (SGR) refers to what?
a) The maximum growth rate it can achieve without issuing new equity
b) The growth rate it needs to maintain market share
c) The target growth rate set by management
d) The growth rate required to pay off all debt
Correct Answer: a) The maximum growth rate it can achieve without issuing new equity
Explanation: SGR is the rate a company can grow without needing to issue new equity, assuming it maintains its current financial ratios.
Question 45
What financial metric is used to evaluate the profitability of a project or investment by calculating the difference between the present value of cash inflows and outflows?
a) Internal rate of return (IRR)
b) Net present value (NPV)
c) Payback period
d) Profitability index (PI)
Correct Answer: b) Net present value (NPV)
Explanation: NPV calculates the difference between the present value of a project's cash inflows and outflows to determine its profitability
Question 46
What is the hurdle rate in capital budgeting?
a) The minimum rate of return a project must earn to be accepted
b) The maximum rate of return a project can achieve
c) The average rate of return of all projects
d) The expected rate of return based on historical data
Correct Answer: a) The minimum rate of return a project must earn to be accepted
Explanation: The hurdle rate is the minimum rate of return that a project must achieve for it to be considered a worthwhile investment.
Question 47
The DuPont framework breaks down return on equity (ROE) into which components?
a) Profit margin, asset turnover, and financial leverage
b) Gross profit, operating income, and net income
c) Liquidity, solvency, and profitability
d) Total revenue, total expenses, and net income
Correct Answer: a) Profit margin, asset turnover, and financial leverage
Explanation: The DuPont framework breaks down ROE into profit margin, asset turnover, and financial leverage to assess how effectively a company uses its assets and equity
Question 48
What type of bond is issued at a price lower than its face value?
a) Premium bond
b) Discount bond
c) Convertible bond
d) Callable bond
Correct Answer: b) Discount bond
Explanation: A discount bond is issued at a price lower than its face value and pays the face value at maturity
Question 49
What is the formula for calculating the present value (PV) of a future cash flow?
a) FV / (1 + r)^n
b) FV × (1 + r)^n
c) FV – (1 + r)^n
d) FV + (1 + r)^n
Correct Answer: a) FV / (1 + r)^n
Explanation: The present value (PV) of a future cash flow is calculated by discounting the future value (FV) using the formula FV / (1 + r)^n, where r is the discount rate and n is the number of periods.
Question 50
What is the purpose of a profitability index (PI) in capital budgeting?
a) To determine the internal rate of return of a project
b) To compare the cost of capital to expected returns
c) To evaluate the relative profitability of a project
d) To estimate future cash flows of a project
Correct Answer: c) To evaluate the relative profitability of a project
Explanation: The profitability index (PI) helps evaluate the relative profitability of a project by dividing the present value of cash inflows by the initial investment
